Ratios and Caps: International developments in Remuneration

Globally there have been significant developments in the area of executive remuneration and corporate governance over the last few months. The following provides a brief overview of new initiatives.



The French government dropped plans to introduce say on pay rules, hoping that companies would work together to design voluntary guidelines.

This occurred, with French business lobbies adopting a new code recommending wider adoption of say on pay measures, restriction of sign on bonuses to executives entering the company from outside the group, restrictions on retirement and termination payments, a ban on hedging of share based incentives and new disclosure requirements.


A law was blocked in Germany’s upper house that would have given shareholders a binding vote on executive pay policies. The legislation failed because a triumvirate of parties including the Social Democratic Party, the Greens Party and the Left Party, judged it to be insufficient to curb rising salaries. The SPD believed limiting the tax deductibility of executive salaries was a more appropriate measure.

The Netherlands

The Netherlands is still planning to limit bank executive bonuses to 20% of fixed remuneration.


On 24th November, Swiss citizens will cast their vote on the 1:12 initiative, which would limit monthly executive pay to a maximum of what the company’s lowest paid staff earn in a year. The government has reportedly urged voters to reject the proposal, saying it could hurt the attractiveness of Switzerland as a business destination.


Canadian organisations are currently digesting new rules requiring organisations listed on the Toronto Stock Exchange to either provide “majority voting” to appoint Directors or explain why they have not.

Canada otherwise operates on a plurality voting system, where shareholders either vote for a Director or withhold their vote. A Director only requires one vote to be elected. Majority voting requires Directors to receive a majority of the votes to be elected. There is some pressure for majority voting to be made compulsory.

The rules also require that individual Directors be elected annually, not staggered over a number of years.

Following the revelation that BlackBerry CEO Thorsten Heins was entitled to a $55 million golden parachute arising from a planned buyout, attention has also turned to CEO severance pay.

Due to the number of Canadian companies listed in the US, there is also speculation as to whether the CEO to median worker ratio will be implemented in Canada.

In tandem, Canada’s Minister responsible for women’s issues has been working with the Ontario Securities Commission on a comply or explain requirement for organisations to disclose goals for raising the number of women on Boards and in senior management.


The US SEC has approved a rule for public comment requiring US companies to disclose the ratio of CEO pay to median employee pay. The SEC has left open exactly how companies would calculate the median, but has said that they can take a statistically representative sample across the globe to come up with a figure.

All employees other than the CEO are to be considered, including full time, part time, seasonal, temporary and non-US employees. Companies could annualise part time workers’ pay and annual workers who have not worked a whole year, but not seasonal workers’ pay.

This rule was first mooted in 2010 with the Dodd Frank Act, but implementation had been delayed.

There are concerns that the inclusion of such a ratio will not provide additional understanding to shareholders but will create a mountain of compliance work – especially given varying remuneration arrangements globally.

It appears unlikely that this rule would be implemented until the 2015 proxy statements.

Activists have also been pushing for tax subsidies for executive pay to stop. A “Stop Subsidizing Multimillion Dollar Corporate Bonuses Act” has been introduced into the US Senate with two sponsors that would put a $1 million limit on compensation deductions for all current and former employees of an organisation. It would also eliminate current exceptions for performance based pay. Currently there is a $1 million limitation on deductions for CEO and three top paid executive’s compensation, with exceptions provided for performance based pay.


The UK’s binding shareholder vote on pay policy and single figure disclosure of executive pay came into effect from 1 October 2013. The binding vote occurs once every three years. There is also an annual advisory vote on actual executive pay, which if voted down forces pay policy to go back to the vote.

The UK is suing the EU Parliament and member states over the legislation passed this year to cut bank executives’ bonuses to a maximum of one times fixed remuneration, or twice fixed remuneration with shareholder approval. The UK has been concerned that it could harm the competitiveness of the UK banking sector. In its case, the UK has said that the law goes against what is permitted in the EU treaty and raised potential data privacy problems with the legislation. Concerns were also aired that fixed remuneration would go up to compensate for lower bonuses, making banks riskier rather than safer.

There are worries that the UK’s shares for rights scheme, which allows employees to give up employment rights for participation in a company share scheme that would then be exempt from capital gains tax, is being used by executives for tax avoidance. According to the Financial Times there was a very low level of interest for the scheme, but private equity firms are using it to pay their executives.

The UK’s Financial Reporting Council is seeking feedback on three proposals it is considering to add into the UK Corporate Governance Code:

  • Instead of requiring companies to give consideration to the use of clawback provisions, it is proposing to require the use of clawback under a comply or explain regulation. It is also considering specifying circumstances under which payments should be recovered or withheld.
  • The Council is consulting on whether code changes are needed to discourage the appointment of Executive Directors to remuneration committees of other listed companies.
  • It is also consulting on greater disclosure of shareholder engagement in the case that a substantial majority vote is not achieved for the remuneration report.

The UK’s Financial Conduct Authority and Prudential Regulatory Authority are also considering whether they should have the power to claw back bonuses of executives from companies the government is forced to bail out. There are concerns such actions may breach human rights laws.


India has changed its rules around remuneration and corporate governance in the newly approved Companies Act 2013. Amongst other things, it has:

  • Mandated the disclosure of a ratio of the remuneration of each Director relative to the remuneration of the median worker, similar to the proposed rule in the US
  • Required a third of the Board to be independent and clarified the definition of independence; and
  • Placed limits on loans to Directors.


Russia’s intention to trim golden parachutes for executives of partially state-owned corporations led to draft legislation, which will likely be considered in November.

New Zealand

Although not a legislative development, a recently released remuneration survey is worthy of note. The New Zealand Institute of Directors released its 2013 Directors’ Fees report in September together with dsd Consulting.

The report found that Non-Executive Director (NED) fees remained static over 2012, while Non-Executive Chairman fees increased by 1.4% for the year. The Institute’s chief executive Dr William Whittaker stated that the restrained increases reflected a sense of caution in the market around remuneration.

This data stands in contrast to the Egan Associates August KMP report, which recorded median increases of 7% and 10% for Chairmen and Directors of New Zealand’s top 50 companies respectively for the  year to December 2012.

The marked difference is likely due to the sample taken. Egan Associates focused on reported fees for New Zealand’s top 50 companies, while the Institute’s survey represented a sample of 1,550 Directors from 991 organisations. This is a diverse sample of companies, which will be of varying size, complexity and at different stages of development. As can be seen in the report’s infographic, the market capitalisation of companies in the sample ranged from less than NZ$5 million to more than NZ$1000 million.